Sharia-Compliant Transactions
Overview
High-profile London real estate deals such as development finance for The Shard, the Olympic Village, the Battersea Power Station regeneration and the redevelopment of the Chelsea Barracks show that Islamic-compliant finance is a viable alternative source of funds for the UK real estate market.
Practical Guidance
Real estate as an asset class for Islamic finance and hybrid structures
Real estate is an investable, tangible asset class that can be used in Islamic finance structures.
Islamic-compliant financing is on a growth trajectory, based on demographic trends, rising income levels and investment by Middle Eastern investors. In addition, non-Islamic market participants are increasingly looking to Islamic financing structures to supplement conventional equity and debt funding.
Global assets of Islamic finance were estimated to be $2 trillion at the end of 2014 and have tripled since the start of the economic slowdown in 2007. Since 2010, there has been a notable increase in the number of Islamic funds and Islamic banks providing mezzanine finance for real estate finance transactions.
Typical structures combine:
equity injected by the investors,
a conventional senior bank loan, which provides the majority of the debt on an interest payment basis, and